Google stumbles in 2Q as slump in ad rates deepens

July 19, 2013

SAN FRANCISCO - Google's financial performance faltered in the second quarter as a downturn in the Internet search leader's ad prices took an unexpected turn for the worse.

The results announced Thursday show Google is still having trouble navigating a technological transition driving more online activity on to smartphones and tablets. Those devices pose a financial challenge for Google because their smaller screen sizes fetch lower ad rates than the marketing pitches made on traditional desktop and laptop computers.

Google's stock shed $44.66, or nearly 5 percent, to $866.02 in extended trading after the results came out.

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Google's average ad rate fell by 6 percent from the same time last year during the three months ending in June. It marks the seventh consecutive quarter that Google's average ad price, or cost per click, has fallen from the previous year.

The magnitude of the declines had eased in each of the previous three quarters, raising hopes that the worse was over. Instead, things deteriorated from the 4 percent decline in ad rates posted during the first three months of the year.

The erosion contributed to results that fell below analyst forecasts.

Google Inc. earned $3.2 billion, or $9.54 per share, up 16 percent from $2.8 billion, or $8.42 per share, a year earlier.

If not for the costs of employee stock compensation, Google said it would have earned $9.56 per share. That missed the average target of $10.80 per share among analysts surveyed by FactSet.